When an Entity Recognizes Revenue

When an entity recognizes revenue, they should use a newly developed revenue standard that consist of five steps. The first step is to identify the contract with a customer. A contract between two or more parties must include an agreement, a commitment to deliver, party’s rights, payment terms, and the ability to collect. In the case of Mi Amigo, LLC, the first step of revenue recognition begins when the customer downloads the game and starts playing which would be the contract between Mi Amigos and its customers.

The second step of approaching revenue recognition is identifying the performance obligations a company has to its customers while engaging in their on-going contract. A performance obligation is a company’s promise to deliver goods or services. Mi Amigo’s performance obligations to its customers include the game working, being able to purchase items in the game, and being able to play Mi Amigo’s game on different platforms like a cellphone, tablets, computer, or a mobile device. As a customer downloads the game, it has made a promise to the customer that they will be able to play the game and it will function correctly. Once the game is in play, if a customer decides to purchase other items with their credit cards, the company must provide these gamers with the items the had paid for and ensure that these items perform the reasonable abilities. Based on the case, Martina Diaz has intentions and obligations that her games will work on different platforms, and different computer systems.

The third step involves determining the purchase price. Martina Diaz had elected that her games will be using a free-to-play model which means that the download of the game is free, but there will be items and upgrades within the game that will require a customer to purchase them at a monetary cost. If Mi Amigo had chosen to have their game only on CD’s or a purchased